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Saturday, September 30, 2006

Trust "Mills" and Lawyer Ethics

I imagine that the situation is fairly typical: A less than scrupulous financial planner, or perhaps someone selling comprehensive "financial and estate" services, (or an estate planning "paralegal") prepares trusts and wills to be signed by a cooperative lawyer-"partner." The lawyer simply signs off on the documents, and the two split the fee. This is fairly common (for example) in the relationship between lawyers and collection agencies. The agency prepares the paperwork, and the lawyer just signs off. The same is true for trust "mills" or "factories," which pump out generic trust documents like so many widgets.

I was once at a Financial Planning Association chapter meeting, when a "financial services" fellow pulled me aside, and suggested a very similar relationship. Now, please do not get me wrong -- as a rule I have found financial planners to be extremely ethical and professional. However, my antennae went up immediately with this individual, and another planner who overheard our conversation pointedly told him at one point, "you've got to be careful. You can't practice law without a license."

That fellow never returned.

In 1990, the Colorado Bar Association addressed this very issue in "Formal Opinion 87," Collaboration with non-lawyers in Preparation and Marketing of Estate Planning Documents

The Colorado Bar determined that this was unethical, on numerous grounds:

-- The arrangement aids the unauthorized practice of law

The purpose of the ethical rule, Rule DR3-101(A), is to protect "the public in its need for and reliance on the integrity and competence of those who undertake to render legal services, recognizing that competent professional judgment is the product of a trained familiarity with law and legal process and a disciplined, analytical approach to legal problems coupled with a firm ethical commitment."

The Colorado Bar cited a previous Colorado Supreme Court decision, which stated that the marketing and preparation of living trust documents constitutes a violation of the Bar Act, constituting the unauthorized practice of law. People v. Schmitt, 126 Colo. 546, 251 P.2d 915 (1952). However, the Bar placed legal aid "kits" prepared for and/or used by the non lawyer in the same category:

Both the "factory" and its non-lawyer salesperson are engaged in the practice of law by preparing and marketing living trust packages, and the attorney's assistance to the factory is an integral part of this process. A lawyer may not assist a non-lawyer corporation which provides legal services to third parties.
The Bar went on:
[A] publishing house's marketing and preparation of living trust "kits" constitutes the unauthorized practice of law as decided in Schmitt, supra. While we hesitate to say that any attorney would violate DR 3-101(A) by representing a client who had obtained such a living trust kit, an attorney who willingly associated himself or herself with such an enterprise, allowing his or her name to be given out in the living trust kits, would certainly violate the rule.

--Fee splitting is prohibited

Another problem with these arrangements is that it violates the near universal rule against fee splitting. Again, the Bar explains the reasoning:

As the American Bar Association has recognized, the purpose of the fee-sharing prohibition is to avoid the possibility of non-lawyer interference with the exercise of the lawyer's independent professional judgment in representing a client, and to ensure that the total fee paid by the client is not unreasonably high.

Yet, this does not mean that a lawyer is wrong in teaming up with other professionals in the estate planning process. Obviously, the ideal "team" is an alliance between a client's accountant, financial planner, and estate planner. The danger, however, is the possibility that the lawyer's independent judgment will be usurped by an unscrupulous and/or uninformed lay person:
The Committee recognizes that a multi-professional "team" approach is often appropriately used in the estate planning process. However, a lawyer involved in such a team must take great care to ensure that such an arrangement does not limit or preclude the lawyer's exercise of independent professional judgment, either with regard to matters delegated to the non-lawyer, or particularly in advising the client as to whether a living trust is appropriate at all.

The bottom line: Let the buyer beware. There are tons of sharks out there. For those of you who attend estate planning seminars, watch the professionals closely during their sales presentation:

If there is a "team," who is doing the talking?

Ask questions. Figure out who on the team prepares the documents?

Also -- who do you interact with as the documents are prepared? If you deal with the insurance agent or "para planner" instead of the attorney, run!

Also, is it high pressure? Are you given a "deal" or a "discount" that will evaporate if you do not sign up right now?

Does the attorney (or other team member) mention anything about funding the trust? If you fail to place the real property, stock, or account in the name of the trust -- as often happens with "mills" -- you end up with a dry, unfunded trust. That's a piece of paper which doesn't do what you paid for.

In the final analysis, remember that the old rule that "you get what you pay for" generally applies in the estate planning field. If you get a "mill" or a "factory" trust -- that's what you get.

If you buy a trust CD for $50, you get ... a $50 trust. That is...

if you're lucky.

Friday, September 29, 2006

Take that, New York

A number of legal blogs have latched onto proposed new rules in New York governing lawyer advertising. The only problem with these rules: They arguably apply to blogs -- even those blogs originating out of state, or even international law blogs.

Allison Shields of the LegalEase blog summarized the draft rule in an early June 15, 2006 post:

Every lawyer needs to be aware of the proposed rules, since they apply not only to lawyers that practice in New York, but also to lawyers that solicit business in New York, which, according to the rules, would include any lawyer whose advertisements on the web can be viewed in New York.
In an article in today's edition of the ABA e-Report, Blogosphere Aboil: N.Y. Proposal Would Designate Lawyer Blogs as Advertising, Stephanie Ward outlines the battle lines:
The storm was set off by a proposal that 'computer-accessed communications' such as blogs be included in New York’s definition of legal advertising, and therefore require state scrutiny. The proposal, by a committee created by the state’s Administrative Board of Courts, also suggests the state code of professional responsibility extend court jurisdiction to out-of-state legal advertising that appears in New York.

"Could I be disciplined by New York state because there are pay-per-click adverts on my weblog or seminars, and these are interpreted as acts which ‘solicit legal services’?" asked Justin Patten, a solicitor in England who posts at his blog, Human Law.

After reviewing the proposed rule, it seems to me that it would not only apply to bloggers, but any firm which posts a website. Many firms, for example, include articles, informational pieces, and other written material which would consitute an advertisment or solicitation for business to the same degree as blogs.

There have been many good pieces written relating to this proposal; however, I must admit that the proposal which will create the greatest heartache for me -- and the most angst -- is this one:

An advertisement or solicitation shall not: . . .

(4) Include the portrayal of a judge, the portrayal of a lawyer by a non-lawyer, the portrayal of a law firm as a fictitious entity, the use of a fictitious name to refer to lawyers not associated together in a law firm, or otherwise imply that lawyers are associated in a law firm if that is not the case;

(5) depict the use of a courtroom or courthouse[.]

Section 1200.6(d)(4)-(5)

Personally, I'm going to have a very tough time with both of these new "advertising" requirements. So -- to get it out of my system before I have to either close down this blog or comply with the onerous state regulations of the aptly named Empire State -- here is a photo of my favorite judge, expressing what I think about this whole thing, captured in a picture from the Boston Herald:

Photobucket - Video and Image Hosting

And, in another act of civil/estate planning disobedience against the great State of New York, here are a few pictures worth considering on this humble blog...isn't this courthouse beautiful?

Photobucket - Video and Image Hosting about this Minneapolis courtroom (yes, a **gasp** courtroom which is, incidentally, also quite beautiful) ...

Photobucket - Video and Image Hosting

Perhaps the fact the courtroom is in Minnesota will reduce my administrative sanction.

Take that, New York.

(Hat tip to Prof. Beyer for bringing this nonsense to my attention)

Tuesday, September 26, 2006

Make sure your trust is coordinated with your durable power of attorney authorization

Something which should be considered when you have an attorney prepare a living trust is to ensure that the trust is coordinated with any durable power of attorney which you may have prepared on your behalf.

A durable power of attorney allows you to designate an agent to act on your behalf. For example, you might want to make sure that you have an agent authorized to manage your financial affairs if you are unable to do so. It is "durable" because your agent may act even if you are under a disability -- even disabilities such as (heaven forbid) Alzheimer's and dementia, or even a coma. A durable power of attorney is not to be confused with a power of attorney authorizing health care decisions, which is an entirely different subject. A durable power relates to financial and property-related matters.

Of course, living trusts also relate to financial and property-related issues. Thus, durable powers of attorney and trusts often overlap in many ways.

However defects or changed circumstances sometimes arise after the trust's settlor (i.e., the person(s) creating the trust) is incapable of amending the trust agreement. In anticipation of such cases, a settlor might want to consider giving his or her agent (also called an "attorney in fact") the right to amend or even revoke a living trust.

In California it is necessary for the trust agreement to specifically state that the attorney-in-fact has the authority to amend or revoke the trust. California Probate Code section 15401(c) requires that the trust document grant this authority.

While there are many considerations involved in deciding whether to ultimately permit your agent to retain this type of authority, make sure that your trust document reflects your wishes. Personally, I prefer the trust document to permit this authority. But if my client wishes to limit the scope of his or her agent (or even to deny the agent the power to amend and/or revoke the trust), I generally address the issue through the durable power of attorney authorization. In my view, this is the most flexible approach which also prevents unnecessary trust amendment in the event the client changes his or her mind, or if circumstances change.

Saturday, September 16, 2006

Passed the Series 65 Examination

I have been a little preoccupied recently, because I have been studying for my Series 65 Uniform Investment Advisor Law Examination. Today, I passed the examination. It allows me to register as an Investment Advisor in the State of California, and to provide certain Financial Planning services that I could not previously provide.

Stay tuned; there will be more later.

Sunday, September 10, 2006


I'm trying to contain myself. I have tried to draft a post twice, discussing advanced healthcare directives and the controversy concerning the Terri Schiavo case -- as well as regarding a recent news story posted on Neil Hendershot's blog here.

I have tried to draft a post twice, and I have also lost the lion's share of the post exactly twice (wasting about an hour) -- it has disappeared into the Blogger "ether" twice.

Damn Blogger. I'm done. When I cool down, perhaps I'll try it again.

In the meantime, the observations as posted on Neil's blog are not necessarily unusual. Here is another story evidencing that at least some diagnosed as being in a Persistent Vegatative State (PVS) may have a conscious existence.

The story is from the Washington Post; here is the most important excerpt:

According to all the tests, the young woman was deep in a "vegetative state" -- completely unresponsive and unaware of her surroundings. But then a team of scientists decided to do an unprecedented experiment, employing sophisticated technology to try to peer behind the veil of her brain injury for any signs of conscious awareness.

Without any hint that she might have a sense of what was happening, the researchers put the woman in a scanner that detects brain activity and told her that in a few minutes they would say the word "tennis," signaling her to imagine she was serving, volleying and chasing down balls. When they did, the neurologists were shocked to see her brain "light up" exactly as an uninjured person's would. It happened again and again. And the doctors got the same result when they repeatedly cued her to picture herself wandering, room to room, through her own home.

More on this later, when I cool down...

Wednesday, September 6, 2006

Another Interesting Blog on Estate Issues

Although I quietly placed his blog on my blogroll yesterday, I wanted to highlight a new blog in the estate planning arena, PA Elder, Estate & Fiduciary Law Blog by Mr. Neil Hendershot. It is an engaging, interesting blog I would refer readers to concerning numerous issues, including elder law matters (which appears to be of special interest to the author).

Other blogs I like are:

California Estate Planning Practice Blog by Jennifer Sawday of Sawday & Drake in Long Beach, California, and Wills, Trusts and Estates Prof Blog, by Prof. Gerry Beyer. I'm also partial to Massachusetts Estate Planning and Elder Law blog, by Leanna Hamill. Ms. Hamill does not post frequently, but her posts are worth reading.

One thing I like about the blogs by Ms. Sawday and Ms. Hamill are the practical issues they regularly raise in their posts. Dr. Beyer's blog is always cutting edge on estate planning issues -- I always go there first, to see "wats happenin'."

Friday, September 1, 2006

What to Think About When Approaching Your Estate Planner...

As I sit here, I can't remember one person who really wants to hire an attorney (that is, ignoring the handful of truly litigious plaintiffs I have run across over the 20+ years of my practice).

Most people don't want to hire an attorney. In fact, most probably dread hiring an attorney to plan their estate.

Thus, if you give me a call and tell me that you will think about hiring me, and you say that "I'll call you back in a few days" I recognize that you may not call back. In fact, I am sometimes surprised when potential clients really do call back. The fact is that going to an estate planner is difficult. Most people who hire an attorney to draft their wills and trusts do so out of a feeling of obligation. Facing your mortality is truly difficult. But then...

How I hate paperwork is facing the paperwork.

If you come to me, I might ask you to search your files, collect deeds, and to give me an idea concerning your finances. In fact, I will give you a questionnaire asking you to detail your investments, etc. While I will do your estate plan without all of the detailed information, to do a complete job, I should know the details.

I may also ask you tough questions about your family. I might ask you to separate your family into classifications, like "who is dependable?" and "who isn't?"

I'll throw you a lot of questions, like:
"Who would be an ideal trustee?" "Is she reliable?"

"Who would you trust to raise your children should you pass away?" "He is single and has never had any children -- is he really the best choice?"

While I am an attorney -- I'm still only the attorney. Obviously I don't know your family in the same way that you do. However, I might be forced to ask you questions about your family, your life and illness, and how you perceive the people who are the closest to you. It might sometimes seem that I am being nosy -- but that's far from my mind. The questions are being asked to make you think, and to provide the best service possible.

At the end of the day, however, I have found that my clients experience a near-universal reaction of relief. I often hear them exclaim that they can "now rest easy." This is especially true because -- I believe -- the prime motivation to seek the advice of an estate planning attorney is a sense of loyalty and obligation to others. I have never seen a circumstance where estate planning was done lightly, and I have never seen a a self centered person only living for himself or herself, with an "eat, drink and be merry for tomorrow we will die" worldview, run to an estate planning attorney for an easy afternoon of frolic.

Therefore, relax into the situation, and realize that by doing this you are doing yourself -- and those closest to you -- a tremendous service.

(Graphic hat-tip: